2020 (3) TMI 72 - AAAR - GST

Classification of services - commission earned from auctioning of flowers - principal agent relationship - agricultural produce or not - benefit of exemption in terms of the entry SI.No 54(g) of Notification No 12/2017 CT (R) dated 28.06.2017 - whether IFAB is a commission agent rendering services for the sale and purchase of agricultural produce ? - challenge to AAR decision. HELD THAT - Going by the nature of activities performed by IFAB, they do not merely cause the sale of goods on behalf of their clients, the flower growers/sellers. They undertake the complete process of auction of the flowers and upon completion of the auction, the sales consideration is received not by the sellers but by IFAB. Thereafter, IFAB will make payments to the growers for the flowers supplied to them after deduction of the commission. The payments are made to the growers/sellers on the day following the end of the calendar week. IFAB themselves issue delivery orders which enables the buyers to take delivery of the flowers from the auction house. They do the billing work and collection of sale proceeds on behalf of their clients. IFAB also invests a great deal in the system of sale through the clock. They offer dealers sophisticated facilities for online buying - remote buying. With the help of such services, IFAB is able to attract an increasing number of international buyers to the auction. It therefore appears to reason that this wide gamut of activities of IF AB would go far beyond the scope of a commission agent since the services rendered by them are not restricted only to sale of goods on behalf of the sellers for consideration, which is the main edifice of the definition of commission agent. We are of the view that the activities of the respondent company - IFAB are more appropriately classifiable as Auctioneer service . Benefit of exemption under SI.No 54(g) of Notf No. 12/2017 CT (R) dated 28.06.2017 - HELD THAT - The Notification, as it is worded, grants exemption to the services provided by a commission agent. Even if the absence of a definition of commission agent in the notification or in the GST statute causes some ambiguity, the notification s applicability to a particular class of service providers is to be arrived at by a strict construction and the benefit must go to the State. Viewed from this principle, it is clear that the respondent company - IFAB is not eligible for the exemption under entry 54(g) of Notification No 12/2017 CT (R). The commission earned from auctioning of flowers is not eligible for exemption under entry no. 54(g) of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017 and entry no. 54(g) of Notification (12/2017) FD 48 CSL 2017 dated 29.06.2017 - AAR decision set aside - appeal allowed.

Summary

Issues Involved:
1. Whether the commission earned from auctioning of flowers is covered under entry no. 54(g) of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017 and entry no. 54(g) of Notification (12/2017) FD 48 CSL 2017 dated 29.06.2017.
2. Classification of the services provided by the respondent company – whether as a ‘commission agent’ or as an ‘auctioneer service’.
3. Eligibility for exemption under the specified notification entries.

Issue-wise Detailed Analysis:

1. Commission Earned from Auctioning of Flowers:
The respondent company, International Flower Auction Bangalore Limited (IFAB), facilitates the auctioning of flowers and charges a commission from both growers and buyers. The company filed for an advance ruling to determine if this commission is exempt from GST under entry no. 54(g) of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017, which exempts services provided by a commission agent for the sale or purchase of agricultural produce.

2. Classification of Services:
The respondent company argued that their activities fall within the definition of an ‘agent’ as per Section 2(5) of the CGST Act, 2017, and that cut flowers are considered ‘agricultural produce’ as defined in the notification. The Authority for Advance Ruling (AAR) initially ruled that the relationship between IFAB and the growers is one of agent and principal, thus qualifying for the exemption.

However, the appellate authority scrutinized the nature of services provided by IFAB, which include auction management, storage, packing, and other ancillary services. The appellate authority concluded that IFAB’s activities go beyond mere commission agent services and align more closely with ‘auctioneer services’. The appellate authority emphasized that the nature of activities performed by an auctioneer and a commission agent are fundamentally different, with auctioneers conducting public sales and handling the entire auction process, including payment collection and distribution.

3. Eligibility for Exemption:
The appellate authority determined that the exemption under entry no. 54(g) of Notification No. 12/2017 CT (R) dated 28.06.2017 is specific to services provided by a commission agent for the sale or purchase of agricultural produce. Since IFAB’s services are classified as ‘auctioneer services’ rather than those of a commission agent, they do not qualify for the exemption. The authority highlighted that exemption notifications must be strictly interpreted, and the specific wording of the notification does not extend to auctioneer services.

Conclusion:
The appellate authority set aside the initial advance ruling, concluding that the commission earned from auctioning flowers by IFAB is not eligible for exemption under entry no. 54(g) of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017. The appeal by the Commissioner of Central Tax, Bangalore North Commissionerate, was allowed, and the services provided by IFAB were classified as ‘auctioneer services’ subject to GST.